No matter how close families are, some topics tend to be avoided at the dinner table. In particular, death and money. Unfortunately, by avoiding these topics, there may be severe consequences for your inheritance plans.
Talking the talk
HM Revenue & Customs (HMRC) recently found that only 24% of parents with adult children have talked to them openly about inheritance. The reasons are obvious. Mortality can be upsetting to think about, while money is an inherently awkward matter to discuss. For better or worse, many families rely on wills that are barely mentioned until they are read after a funeral to gathered loved ones.
So sit up and ask yourself: are your children actually ready to inherit?
We’ve discussed in a previous article that suddenly receiving a large amount of wealth can bring on feelings of confusion, guilt and isolation. Add into the mix the fact that your children are receiving this windfall soon after losing a loved one, and this can be an extremely difficult time for them.
Aside from the emotional aspects, do you think your children are actually well-informed enough to receive such money? According to the Financial Conduct Authority, the UK’s financial regulator, only 6% of British people have taken financial advice in the past year, which means millions of people aren’t aware of the intricacies of wealth and how to manage it.
I love it when a plan comes together
The good news is that you don’t have to rely on just a will to pass on your wealth. In fact, there are several strategies available. HMRC offers allowances for gifts that are exempt from inheritance tax (IHT), allowing you to pass on assets during your lifetime. By developing an understanding of these allowances and how they can be used, your estate can be gradually passed on and distributed between your loved ones with potentially minimal IHT to pay. This approach, more nuanced than simply passing on lump sums through a will, can also be of greater help to your children if you understand what assistance is of most use – what is their current financial situation? What are their aspirations?
Trusts can also be a particularly helpful estate planning tool. They come in numerous varieties but essentially allow for assets to be held outside of your estate so they can be passed onto named beneficiaries. As well as offering privacy and a degree of control over how wealth is passed to the next generation, trusts can also safeguard assets from changes to the family dynamic, such as divorce. Brutal as it may seem, trusts can prevent assets falling into the hands of an ex-in-law, whereas gifting cash might not. What’s more, for younger children and grandchildren, trusts can be helpful in protecting assets from the very beneficiaries they are being passed onto (until they reach a certain age).
Matters can be further complicated if a family business is involved and the issue of succession needs to be confirmed. Are there particular relatives that hope to inherit the family business? And if they weren’t family, would you still pick them as the right people for the job? Businesses are expensive and complex assets, so for the sake of beneficiaries, employees and customers, further discussions may be required.
Get an early start
When a will is read out and an inheritance plan is implemented, it’s a highly emotional time for everyone. Macabre as it may sound, it’s in your and your family’s interest for you to prepare in advance and make this period run as smoothly as possible. The last thing your loved ones will want to do is deal with needlessly high IHT bills, quibbles over asset ownership or even outright disputes over inheritance amounts. Remember, you won’t be around to clarify or change anything.
Fortunately, there are many inheritance planning strategies available and at London & Capital we use a wide range of these. Every family is different, so it helps if bespoke planning can be used where possible. In the meantime, the most simple and important first step can be to start asking loved ones these questions about inheritance. The answers may be surprising, confusing or even frustrating, but it’ll all be useful and hopefully make the inevitable an easier time for them to deal with.
To get in contact with London & Capital, please give us a call on +44 (0) 207 396 3388 or get in contact here.